Finance Options for 4-plex

[Chi Sastry]

Hi BP- 

buying my 3rd multi-unit property.

I’m putting a contract on a 4plex

I’d like to understand which financing option is better:

Option 1 - Residential loan- 7.99%, 30 yrs, 25% down. 3 points at closing plus 2% closing cost. monthly Mortgage is ~ 1800 Under my name.


Option 2- Commercial loan. 7.75%, 20yrs, 20% down. 5 year balloon payment. 1% for closing. No points.
monhtly mortgage is ~ 2100. Under LLC

Option 2 is 13K less for closing. But also lower cash flow every month.


Any other suggestions on how to analyze the deal. I’d like to use the 13k to buy another property. But don’t like the 5/20 or the lower cash flow.

Thanks!!

[Ryan Muska]

You are paying 5 points for option 1?!?! This seems outrageous for a residential loan, but then again we don't have all the info, so I can't say for certain. 

I would stay away from balloon payments as much as possible

[Jason Wray]

Chi,

You should look at a Portfolio program they offer 15% down even for 4 units and there is only 1 point on portfolio with No prepays.  Rates are around 7.75% with good credit.

A portfolio is a banks true private capital so they service the loan and offer better otpions.

[Chi Sastry]

Quote from @Ryan Muska:

You are paying 5 points for option 1?!?! This seems outrageous for a residential loan, but then again we don't have all the info, so I can't say for certain. 

I would stay away from balloon payments as much as possible

 Hi Ryan - not 5. But 3 points. 

[Chi Sastry]

Quote from @Jason Wray:

Chi,

You should look at a Portfolio program they offer 15% down even for 4 units and there is only 1 point on portfolio with No prepays.  Rates are around 7.75% with good credit.

A portfolio is a banks true private capital so they service the loan and offer better otpions.

This is amazing- I didn’t know about this. I need something that lets me buy 1-2 multi family units a year. 
any recommendations on program names/lenders that do this?  
Thanks!! 

[Jason Tucker]

Quote from @Chi Sastry:

Hi BP- 

buying my 3rd multi-unit property.

I’m putting a contract on a 4plex

I’d like to understand which financing option is better:

Option 1 - Residential loan- 7.99%, 30 yrs, 25% down. 3 points at closing plus 2% closing cost. monthly Mortgage is ~ 1800 Under my name.


Option 2- Commercial loan. 7.75%, 20yrs, 20% down. 5 year balloon payment. 1% for closing. No points.
monhtly mortgage is ~ 2100. Under LLC

Option 2 is 13K less for closing. But also lower cash flow every month.


Any other suggestions on how to analyze the deal. I’d like to use the 13k to buy another property. But don’t like the 5/20 or the lower cash flow.

Thanks!!

Isnt there a new rule about FHA allowing only 5% down on a Multifamily loan now? ive seen many articles pointing out this option. I think it goes in affect this month

[Devin Peterson]

Quote from @Chi Sastry:

Hi BP- 

buying my 3rd multi-unit property.

I’m putting a contract on a 4plex

I’d like to understand which financing option is better:

Option 1 - Residential loan- 7.99%, 30 yrs, 25% down. 3 points at closing plus 2% closing cost. monthly Mortgage is ~ 1800 Under my name.


Option 2- Commercial loan. 7.75%, 20yrs, 20% down. 5 year balloon payment. 1% for closing. No points.
monhtly mortgage is ~ 2100. Under LLC

Option 2 is 13K less for closing. But also lower cash flow every month.


Any other suggestions on how to analyze the deal. I’d like to use the 13k to buy another property. But don’t like the 5/20 or the lower cash flow.

Thanks!!

 Those fees and closing costs for that loan program seem extremely steep. There are definitely better options out there for you.

[Devin Peterson]

Quote from @Jason Tucker:

Quote from @Chi Sastry:

Hi BP- 

buying my 3rd multi-unit property.

I’m putting a contract on a 4plex

I’d like to understand which financing option is better:

Option 1 - Residential loan- 7.99%, 30 yrs, 25% down. 3 points at closing plus 2% closing cost. monthly Mortgage is ~ 1800 Under my name.


Option 2- Commercial loan. 7.75%, 20yrs, 20% down. 5 year balloon payment. 1% for closing. No points.
monhtly mortgage is ~ 2100. Under LLC

Option 2 is 13K less for closing. But also lower cash flow every month.


Any other suggestions on how to analyze the deal. I’d like to use the 13k to buy another property. But don’t like the 5/20 or the lower cash flow.

Thanks!!

Isnt there a new rule about FHA allowing only 5% down on a Multifamily loan now? ive seen many articles pointing out this option. I think it goes in affect this month

 Yes, 5% down for Fannie Mae. OK for 2, 3 and 4 unit properties. They also eliminated the self-sufficiency test which was the huge killer for the last handful of years.

[Caroline Gerardo]

@Devin Peterson self sufficiency test is only for FHA. conventional just loosened up down to lower down payments for 3-4 units so that's super wonderful. However the property still needs to not be losing money which is a difficult goal to reach with rates so high.

Get an insurance quote NOW. The PITI needs to be exact, not a guess.

5 points for conventional is crazy, and the tiny lower rate difference makes zero sense. Get that rate up a bit to 8.25 and the total points and costs to 2 or 3 and only do a 30 year loan. Conventional is going to save money in the long run as you are not forced to sell or refinance in the future. You have no idea what your income or FICO  will be in five years, God willing it's better but we cannot be certain. If the numbers work you can put less down on conventional today.

The commercial loan amortized over 20 is a higher payment- look at the amortization schedule and see where the principle balance will be in 60 months. You will pay loan fees a second time to refinance so add 2-3% of the balance at month 60 as the extra loan cost in your upfront comparison. I don't know commercial lenders who offer 1 point 7.75 so that seems unrealistic to tell you you can close on that is a dream. Get that 7.75 1 point deal in a commitment letter today.

[Chi Sastry]

Quote from @Jason Tucker:

Quote from @Chi Sastry:

Hi BP- 

buying my 3rd multi-unit property.

I’m putting a contract on a 4plex

I’d like to understand which financing option is better:

Option 1 - Residential loan- 7.99%, 30 yrs, 25% down. 3 points at closing plus 2% closing cost. monthly Mortgage is ~ 1800 Under my name.


Option 2- Commercial loan. 7.75%, 20yrs, 20% down. 5 year balloon payment. 1% for closing. No points.
monhtly mortgage is ~ 2100. Under LLC

Option 2 is 13K less for closing. But also lower cash flow every month.


Any other suggestions on how to analyze the deal. I’d like to use the 13k to buy another property. But don’t like the 5/20 or the lower cash flow.

Thanks!!

Isnt there a new rule about FHA allowing only 5% down on a Multifamily loan now? ive seen many articles pointing out this option. I think it goes in affect this month

It’s in Nov 2023

[Justin Hammerle]

@Chi Sastry - I vote option 1 - better cashflow and no balloon.

[Chi Sastry]

Quote from @Justin Hammerle:

@Chi Sastry - I vote option 1 - better cashflow and no balloon.

Thank you!!

[Kyle Sosnowski]

Hi @Chi Sastry, 

Would love to hear what you settle on once you've made a choice after hearing everyone's opinions for your situation! 

And congratulations on yet another property, keep up the hustle! 

[Dan Rowley]

following...

[Stephanie Medellin]

Quote from @Jason Tucker:

Quote from @Chi Sastry:

Hi BP- 

buying my 3rd multi-unit property.

I’m putting a contract on a 4plex

I’d like to understand which financing option is better:

Option 1 - Residential loan- 7.99%, 30 yrs, 25% down. 3 points at closing plus 2% closing cost. monthly Mortgage is ~ 1800 Under my name.


Option 2- Commercial loan. 7.75%, 20yrs, 20% down. 5 year balloon payment. 1% for closing. No points.
monhtly mortgage is ~ 2100. Under LLC

Option 2 is 13K less for closing. But also lower cash flow every month.


Any other suggestions on how to analyze the deal. I’d like to use the 13k to buy another property. But don’t like the 5/20 or the lower cash flow.

Thanks!!

Isnt there a new rule about FHA allowing only 5% down on a Multifamily loan now? ive seen many articles pointing out this option. I think it goes in affect this month

 Guidelines are changing next month for owner occupied 2-4 unit properties to allow for 5% down. FHA has always been 3.5% down. Next month conventional loans will allow 5% down.